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HMRC internal manual

VAT Groups

General principles of VAT group treatment: when is an intra group reverse charge due?

The “intra-group reverse charge” will become due when all the following conditions are met:

  • (a) When one member of a VAT group (“the supplier”) makes an intra-group supply of services to another member of the same group established in UK (“the UK member”) where the place of supply would be determined under the VAT Act 1994, section 7A(2)(a); and where the disregard of supplies between group members by virtue of section 43(1)(a) of that Act would otherwise have applied;
  • (b) That intra-group supply of services is not a service within any of the descriptions in the VAT Act 1994, Schedule 9 (exempt supplies);
  • (c) “The supplier” has itself been supplied with services to which section 7A(2) applies, from outside the group, and those services do not fall within Schedule 9;
  • (d) “The supplier” received the supplies (at c above) at an overseas establishment;
  • (e) “The supplier” has used the supplies (at c above) in making the intra-group supply (at a above) to the “UK member”.

For example, US company (A) is a member of a UK VAT group. It buys in data processing services from another US company (B) and supplies those same services on to a UK based member of the same group (C). In accordance with section 43(2A), this supply will not be disregarded but will be treated as if it had been both made and received, in the UK, by the representative member. Consequently, VAT will be due on that supply from the representative member.

Similarly, where A buys in bespoke software from B and includes that software in a supply to C of computer consultancy services and data processing, VAT will be due in the hands of the representative member.

The reverse charge is not calculated on the full value of the intra-group supply, but rather on the value of supply bought in by the supplier, to the extent it is used to make the intra-group supply. This treatment has been given by concession [number], but is expected to be replaced by legislative treatment shortly.